Post Tax Season Tips for People Who Owe Taxes

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Do you (or someone you know) owe taxes this year and need to reduce the amount of taxes owed for next year? I DO!

Although many people received a tax “refund” this year, there’s just as many, if not more, people who owe taxes to the IRS. For those who have to pay money back to the IRS, after you contact them or a tax professional to set up a reasonable payment plan, here are a few Post Tax Season Tips to help you reduce, minimize or eliminate the amount of taxes owed for next year.

CHECK YOURSELF

Review and update your W-4 (Employee’s Withholding Allowance Certificate). The last time most people saw their W-4 was their first day of work when they completed it with their HR department. Make sure to review your W-4 annually or at least when significant life events occur. So if you’re newly married, recently divorced, recently widowed, a new parent, a recent empty nester, recently promoted, etc.; review your W-4 and make the necessary adjustments. Most likely you will need to change the number of “Withholding Allowances.”

LEGITIMIZE YOURSELF

Turn your hobby, network marketing opportunity or money making skill set into a legitimate business. Whether you become a Sole Proprietor or choose to incorporate, there are huge tax advantages with having a business.  Some things that you purchase for the business may be deductible on your taxes, like mileage, supplies and possibly your cell phone expense if it is used for business. Regardless of whether you make or lose money, you must run it as a real and legitimate business to get the business tax advantages.

INVEST IN YOURSELF

Increase your pre-tax deduction through contributing more to your employer sponsored retirement savings plan like a 401(k) or 403(b).  If you are self-employed, consider contributing to an Individual 401(k) or a Traditional IRA (Individual Retirement Account). Contributing more will not only accelerate your savings for retirement, it will also reduce your taxable income.

EDUCATE YOURSELF

Start or go back to school. Certain types of school loans may be deductible. Even while you are in school, pay the interest that accrues on the student loans that are in deferment because that amount may be tax deductible.

UPGRADE YOURSELF

Purchase or renovate a home. Being a homeowner has many tax advantages, from the points you paid on the loan and interest paid on the mortgage for the year, to the energy efficient appliances purchased for the home. If you are currently a homeowner, consider upgrading your appliances, roof, windows or fixtures to Energy Efficient products. You will not only save money throughout the year with reduced energy costs, but you can include those deductions on your taxes.

Make sure you ITEMIZE your taxes by using IRS Form 1040 to benefit from these strategies. Contact a tax professional, financial planner or a licensed investment adviser to discuss these and other options that will best support your budget and situation to implement these strategies immediately.